The social discount rate and the cost of public funds: a search for more consistency and better practice

Figures & data

Table

	Social discount rate (SDR)	Cost of public funds	Systematic (income-correlated) risk in public service outputs
STP (‘social time preference’) regimes	Social time preference for consumption.	Shadow price for public spending dollars. or CBA ranking by ratio of consumption benefit to spending from a constrained budget.	Cost normally estimated from neoclassical index of risk aversion. Usually small.
SOC (‘social opportunity cost’) regimes	Equal to cost of funds as defined in next column	Weighted average rate of return to foreign borrowing and displaced private sector activity. or Pragmatic average pre-tax return on private sector investment.	Not explicitly addressed, but discount rate includes an equity market risk premium.
Financial economics approach	Risk free rate plus case-specific multiple of equity market risk premium. or Pragmatic, fixed equity risk premium in STP rate.	Tax-burden costs not considered. Implicitly included as a shadow price for public spending.	Equity market based risk premium in discount rate.